Timing Debt Deadlines

My print column examines efforts to project the two dates on which, without government intervention, two successive shocks to the federal finances will occur: (1) Treasury exhausts extraordinary measures to extend borrowing authority; and (2) cash reserves run out.

Treasury forecasts the first shock will occur on Oct. 17, this coming Thursday — if, that is, efforts late this week to broker a deal and buy six more weeks of time aren’t successful. Some economic analysts say the specification of a specific date has helped focus policy makers. Oct. 17 is “a day we can know in advance,” said Shai Akabas, senior policy analyst at the Bipartisan Policy Center, a Washington, D.C., think tank. “Policy makers want to know a specific date.”

There are potential drawbacks to putting so much focus on Oct. 17, though, when more dire consequences come later, after the cash has run out. “We shouldn’t go to zero, and I have sympathy with setting a date that isn’t when your money is gone,” Robert Kahn, an economist at the Council on Foreign Relations, a Washington, D.C., think tank. But the reality is the debt issue “doesn’t have the clean single date that maybe would be helpful politically, to be honest.”

“In this gradual turning up of the temperature” — like the proverbial frog in slow boiling water — “some people may conclude it’s not a problem,” Kahn added.

He added, of Treasury’s emphasis on Oct. 17, “They have said, this is the end. The reality is, this is not the end.” That the long-term implications of default — global economic turmoil; degradation of U.S. debt rating; and plunging markets — are so grave doesn’t mean any one day will be that much graver than the prior one.

The same goes for the date when cash runs out, though forecasters are getting a bit more specific about when they expect that to occur. “We’re getting increasingly confident in the rough window we are looking at,” Akabas said. Nonetheless, “There will be no date in which we can say, tomorrow the U.S. government will run out of cash. For us on the outside, there won’t ever be a time when we know.” Part of the reason, he said, is that “it’s something of a guessing game, how much revenue you’re going to get” in any given day.

Economist Jason Furman, chair of the president’s Council of Economic Advisers, acknowledged this reality on Monday, saying at a Politico-organized breakfast, “It’s irresponsible to get to the 17th — but, no, you don’t fall off a cliff instantly.”

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